Beware Junior stocks and shares Isa offersExpensive investments and potentially unfair terms
24 March 2012
Several Junior stocks and shares Isa providers are offering expensive investments and what we think are potentially unfair terms in some products, Which? has discovered.
With-profits funds and Junior Isas
Red Rose Assurance is one of a number of friendly societies offering a with-profits fund investment within its Junior Isa wrapper.
In a with-profits fund, you may face a reduction in your pay-out if the investments perform poorly (known as a market value reduction, or MVR).
While almost all friendly societies offering this type of investment promise that an MVR will not apply on the Junior Isa holder's 18th birthday, Red Rose Assurance offers no such guarantee. This could seriously reduce the amount your child or grandchild could receive when they turn 18.
High management charges
Meanwhile, the Children's Mutual only offers one fund in its Junior Isa wrapper: The SWIP Foundation Growth Fund. Within this Junior Isa, the fund has an annual management charge (AMC) of 1.5%, making it almost four times more expensive than some of the cheapest tracker funds on the market.
Using discount broker Cavendish Online, you could invest in the HSBC FTSE AllShare Tracker, which charges 0.4% a year, in a Junior Isa wrapper for a one-off £25 admin fee and no additional fees thereafter.
Less generous discounts
Also, be aware that the discounts on charges offered for adult stocks and shares Isas through discount brokers aren't as generous for their Junior Isa counterparts.
Hargreaves Lansdown, one of the UK's largest brokers, does not rebate any part of the AMCs back to investors into Junior Isas (as they do for adult Isas).
Fidelity Funds Network, another big provider of investments to consumers, charges a 1% initial charge if you are topping up an existing investment within the Junior ISA, and if you switch between funds, you have to pay 0.25%.
Fidelity told us that if you invest in its MoneyBuilder range of funds, you do not incur a switching fee.
Find out exactly what you're paying for
If you use a discount broker to invest in a Junior Isa, make sure you know what you're signing up for.
For example, the likes of Hargreaves and Fidelity may be pricier, but offer phone and email support, the possibility of free fund switching and access to advice.